by Jack Margolin

YUZHNE - Energy Resources of Ukraine, an American firm trading in natural gas and fertilizers, has emerged as the most likely contender to buy the the Odesa Port Plant.

Known as ERU, the company took the major step of signing a 20-year insurance policy with Overseas Private Investment Corporation, or OPIC, the foreign investment promotion arm of the U.S. government.

American investors from ERU listen to a briefing on a tour last week of the Odesa Port Plant (Photo: Jack Margolin)

The massive plant opened in 1978 in Yuzhne, an industrial Black Sea port city about one hour northeast of Odesa city. For almost 30 years, it produced and shipped ammonia and urea, key components of fertilizer. At its peak, the plant shipped 85 percent of its production to 30 countries around the world. But last December, after two failed privatization attempts, the plant, known as OPP, shut down under heavy debts. The plant’s 4,000 employees were thrown out of work.

As a result of a deal with ERU, the plant resumed operations in March. This agreement provided for new deliveries of natural gas and raw materials.

In mid-April, the insurance deal was clinched with OPIC, which provides export credit insurance and other services to U.S. firms overseas.

Rising alongside the docks of Yuzhne's deepwater port on the Black Sea, this Odesa Oblast plant exported chemicals throughout the world for 30 years. (Photo: Jack Margolin)

Selloff Bid Produced No Buyers

In Kyiv, the State Property Fund wanted OPP to be Ukraine’s first major privatization project. It was to kickoff a planned drive to sell corruption-riddled state companies following the 2013-14 Revolution of Dignity. Although the price was slashed from $500 million to $200 million on a second sale attempt last year, no buyer emerged.

Earlier this month, Ukraine’s government reaffirmed its commitment to sell the plant as part of its priority privatization plan for 2017. Included in this plan is the sale of power generator Cenrtrenergo (CEEN UK).

The privatization list, part of the government’s commitment to the International Monetary Fund, also includes stakes in power DisCos, Mykolayivoblenergo, Ternopiloblenergo (TOEN UK), Khmelnytskoblenergo (HMON UK), Kharkivoblenergo (HAON UK) and Zaporizhiaoblenergo (ZAON UK). The cabinet said privatization would be scheduled for the second or third quarters of this year,

Firtash Debt

Despite having attractive assets, the plant’s appeal was harmed by an outstanding debt of more than $200 million to Dmytro Firtash. Long involved with Ukraine’s gas industry, this magnate faces possible extradition from Austria to the United States on corruption charges.

In March, ERU committed more than $20 million in credit support arrangements to OPP, allowing production and shipping to resume. ERU will deliver up 60 million cubic meters of gas a month to the plant.

Ihor Bilous, the outgoing head of the State Property Fund, said collaboration between OPP and ERU “helps to ensure the continued viability and attractiveness of the plant international investors in the forthcoming privatization.”

Operators monitor screens at the plant after it restarted in March. (photo: Jack Margolin)

Compete on World Markets

Last week, on a tour of the plant, ERU Managing Director, Andrei Favorov, told the UBJ he sees the plant as a serious player in world markets.

"People are often afraid to make a difficult choice,” he said. “It is not a simple choice, after everything that happened last year surrounding this facility. We need to give it a chance, and continue its work.”

“This facility would be able to compete on the global market, and certainly within the Ukrainian market," said at a press conference last week at this massive complex, located on the edge of this city’s deepwater port.

Volodymyr Novatsky, the mayor of Yuzhne, said finances are a concern, “but livelihoods are also at stake.”

For comments or story tips, please email UBJ Odesa Correspondent Jack Margolin at: jmargolinfb@gmail.com.

Posted April 27, 2017